ENTREPRENEURSHIP

TOPIC 2
 TOPIC 2

Developing a Business
Mindset and Starting a
Business
Learning Objectives

1. Explain the concept of adding value in a business and

identify the major types of businesses
2. List three steps you can take to help make the leap from a
consumer to a business professional
3. Describe the business plan and the start-up decisions made by
small businesses
4. Discuss the five major environments in which every business
operates
5. Explain the purpose of the six major functional areas in a
business enterprise

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Understanding What Businesses Do

• Business
• Any profit-seeking organization that provides goods and services designed
to satisfy customers’ needs

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Identifying Major Types of Businesses
• Not-for-profit organizations
• Organizations that provide goods and services without having a profit
motive, these are also called nonprofit organizations
• Goods-producing businesses
• Companies that create value by making “things,” most of which are
tangible

• Service businesses
• Companies that create value by performing activities that deliver some
benefit to customers

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Adding Value to Satisfy Customers

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Adding Value: the Business of Business

• Revenue
• Money a company brings in through the sale of goods and services
• Business model
• A concise description of how a business intends to generate revenue
• Profit
• Money left over after all the costs involved in doing business have been
deducted from revenue

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Competing to Attract and Satisfy Customers

• Competitive advantage
• Some aspect of a product or company that makes it more appealing to
target customers

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Starting the Small Business

Buying an Existing
Business

Franchising

Starting from
Scratch
 1. Buying an Existing Business
• Advantages
• Business may continue to be successful
• Leverage the experience of previous owner
• “Turn-key” business
• Superior location
• Employees and suppliers in place
• Equipment installed
• Inventory in place
• Trade credit established
• Easier access to financing
• High value
 1. Buying an Existing Business
• Disadvantages:
• Cash requirements
• Business is losing money
• Paying for “ill will”
• Unsuitable Employees
• Unsatisfactory location
• Obsolete equipment and facilities
• Change and innovation challenges
• Obsolete inventory
• Value of accounts receivable
• Business may be overpriced
 Five Critical Areas for Analyzing
an Existing Business

1. Why does the owner want to sell...the real

reason?
2. What is the physical condition of the business
and its assets?
3. What is the market potential for the company's
products or services?
◦ Customer characteristics and composition
◦ Competitor analysis
4. What legal aspects must I consider?
 2. Franchise
• A franchise business is a business in which the owners, or "franchisors", sell
the rights to their business logo, name, and model to third party retail outlets,
owned by independent, third party operators, called "franchisees“.

• Franchisee must first pay an initial fee for the rights to the business, training,
and the equipment required by the franchise. Once the business begins
operating, the franchisee will pay the franchisor an ongoing royalty payment,
either on a monthly, quarterly, or annual basis. This payment is usually
calculated as a percentage of the franchise operation’s gross sales.

• After the contract has been signed, the franchisee will open a replica of the
franchise business, under the direction of the franchisor. The franchisee will
not have as much control over the business but may benefit from investing in
an already-established, name brand.
 2. Franchise
• Advantages
• Proven business opportunity
• Access to management expertise
• Disadvantages
• Start-up costs
• Ongoing payments
• Management rules and restrictions
 3. Starting from Scratch
• Starting a business from scratch is where most
small business owners begin, taking a passion and skills and
combining each with real world applications.

• The owner will have complete control over the business and the
power to increase chances of business success and outwit the
competition.
 3. Starting from Scratch
• Who and where are my customers?
• How much will those customers pay for my product?
• How much of my product can I expect to sell?
• Who are my competitors?
• Why will customers buy my product rather than the product of my
competitors?
Seeing Business from the Inside Out

• Business mindset
• A view of business that considers the myriad decisions that must be made
and the many problems that must be overcome before companies can
deliver the products that satisfy customer needs

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The Business Mindset

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Positive and Negative Effects of Business

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The Multiple Environments of Business

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Major Functional Areas in a
Business Enterprise

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Identifying the Major Functional Areas in a Business
Enterprise
• Research and development (R&D)
• Functional area responsible for conceiving and designing new products
• Information technology (IT)
• Systems that promote communication and information usage through the company or
that allow companies to offer new services to their customers
• Manufacturing, production, or operations
• An area where the company makes whatever it makes (for goods-producing
businesses) or does whatever it does (for service businesses)
• Purchasing, logistics, facilities management
• Marketing
• charged with identifying opportunities in the marketplace
• working with R&D to develop the products to address those opportunities
• creating branding and advertising strategies to communicate with potential customers,
and setting prices
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Identifying the Major Functional Areas in a Business
Enterprise (cont.)
• Finance and accounting
• responsible for virtually every aspect of a firm’s finances
• ensuring that the company has the funds it needs to operate
• monitoring and controlling how those funds are spent
• drafting reports for company management and outside audiences such as
investors and government regulators
• Human resources (HR)
• responsible for recruiting, hiring, developing, and supporting employees

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